B (4:22)

Sure. So in Europe we are regulated under European crowdfunding legislation. So it's a single law for all EU markets. So basically our license is issued by European Central Bank. What it means that once we obtain the license, let's say at our home country Lithuania, then we can passport it to any EU state. Then you know, it's just let's say a very standardized process. We need to get approvals, authorizations and then we can operate in, in any market we choose to do business in. In terms of requirements, obviously this is a retail product so there's a lot of, of requirements involved. I wouldn't say that let's, let's say where most you know we have clients that are let's say small size developers but at the same time we are serving publicly list have done a few deals with them and where everyone gets surprised is that you know, you ask, you know, they, when we were talking with them, they say, you know guys, you're asking just as much for even, even more documents than banks typically do. And yes, that's true. It doesn't mean that you know, if, if we are non, non banking lender that we will be more easy. Essentially we just have to follow the laws, the requirements and just be compliant. In terms of investors protection. Everything is secured. When it comes to us, we have exceptional track records. We finance over 80 million euros, so close to $100 million in property finance. To date since 2020 we have had zero defaults. This has been achieved that we structure deals from security standpoint from two angles. So first angle is that we place first rank mortgage on behalf of the investors. Basically the investors capital secured the asset. We only finance existing assets. So no greenfield developments, no land developments, just already existing buildings which are typically misused or underused or need some refurbishment or cash flow assets basically let's say tangible assets with tangible value. Secondly, in Europe it's quite typical to establish SPVs or doing real estate transactions. So we don't accept SPVs as our borrowers. We do establish agreements with them but then we need to place additional sureties or warranties from holding companies or the shareholders themselves. So I think it pretty much sums up. But let me know what needs further explanation.

A (6:55)

No, I think it's excellent starting point I guess. Guess like the part that I'm curious about is you know, you it like on your site it looks like you have both a coupon and you know, capital appreciation. How do you so like how do you structure returns and promotes? Because at least where we are. And so I guess the hurdle that you're maybe trying to get over for the show is educating people in the US and Canada where you know, we have almost two separate categories, sort of debt and equity. And then I mean there are syndicated mortgages and like a lot of syndicated systems in, in both markets but I would say that they're becoming less popular in favor of some of these more equity based crowdfunding things. But it looks like you've sort of captured best of both worlds. So I'm curious as to how you do that and how even if you can just explain it maybe like in terms of a promote structure just and I we can, we can sort of explore how it might differ from the way the returns are structured in Canada

B (7:50)

and the U.S. so basically we don't offer securities, we only offer loans. So in Europe loan is not considered a security bond is. But A loan is not. So basically it's a non tradable loan. So based on open markets and exchanges, so to say. So in terms of the structures, we do two types of deals. So first one is fixed monthly interest and it has fixed interest payable at the end of project. So let's say we could call this as a fixed capital gain. So this typically is around. This fixed capital gain is around 1.52% per annum. So with these sort of deals we target Investor returns between 9 and 12% per annum, give or take. Then we have another type of deals. These deals are mainly used for transactions where the asset is acquired for a significantly lower than market price and the borrower lacks 30% equity. So let's say it could be 20, it could be 15%, but it's just not 30%. So in those particular cases, instead of using fixed capital gains or interest payable at the end, we offer the investors the ability to earn from variable interest. Again it's not a security, it's a method of interest. What basically happens is that when the project is being developed, the developer space monthly fixed interest and once the project gets sold, this part of profit of this project is distributed as a variable interest to the investor.

A (9:29)

Okay, awesome, I appreciate that. I guess let's move on to the second part of the kind of thought from the beginning there which is examining the supply and demand of both your deals and your investors. So maybe let's start with the supply side. I noticed a lot of cool areas that I've never seen the ability to invest in in on other platforms. And I know you know you have some stuff in Poland which has been a really hot market but difficult to buy as a direct investor. As a non resident, can you give me an idea of like where most of your deals are geographically and who's bringing them to you, are they experienced developers, etc. Like kind of give me the full scope and don't be afraid to go too long on this one of like, you know this is an opportunity to sort of talk about really what you're selling. Right. Like tell me about the deals that you guys are bringing to the platform.

B (10:20)

Sure. So you know like for a financial institution, ability to acquire the right clients is it's net worth same as for real estate developers, ability to acquire assets. So basically making this pipeline. So when we talk about the profile of our developers, it's typically someone who's either from mid sized developer, who are typically mid sized developers or large developers, but they need money really fast. So basically they are Fine with borrowing at high cost. So the way how we acquire them, there's basically three acquisition channels. So first one is direct sale, we have people on the ground. Second we use broker services. And third one is word of mouth. So basically there's very few financial institutions in Europe who could facilitate you the process from beginning to the end. Let's say you need to raise 5 million euros under a month. There's very few who could do it. Last deal, we have done this in less than three weeks. So basically when you solve such problems for even publicly listed companies, you know, the reputation spreads fast. So basically we always interested to work with real estate developers who are touching this no man's land as I call it. Like if you, let's say look, in Europe, typically deals up to 1 million euros are done by private investors. So you, you may be higher net worth, but up to 1 million there's a lot of competition despite the market. Then when you or up to 2 million euros, depending on which market, but that's pretty much where the private investor ends. Then you have the large developer space which starts from 10, 15 million euros project cost. The space in between is done by no one. So basically it's too big for a private investor and then it's too small for the large real estate developer. And this pretty much happens the same for financial institutions as well. Basically banks are not interested to do real estate finance for less than 10 million euros. So it creates this high margin space because the sellers struggle to sell these sorts of assets. You can acquire them for relatively low price per square meter or square foot as you say, for the whole building, for the gla rather than let's say an apartment in the next block. Basically we focus on this particular space there. There aren't many developers who do this. So let's say if you make a list, even in a country as Poland, it has something like 30 million people population, there's probably up to 300 developers who could do this. So you can easily craft a list and just go out, call them, meet them, have a coffee, get to know. And that's, that's pretty much how we do it. But when it comes to deal sourcing itself, we first of all, we want to make sure that the asset that the developer purchasing, this doesn't matter how much equity he's putting in, would be acquired significantly for a lower price than the market. You may wonder, so why would we care if there's, let's say 30% of equity? Because the short answer is we're in the business of financing, not repossession and not recover. We really care about our track record and we want to make sure that the developers will make enough margin to first earn second cover their obligations toward investors. So there's one question that we like to answer when doing the deal sourcing. Then second, if it's cash flow generating assets, we want to make sure that the yield is high and we wouldn't need to think where would the developer will get the money to service the Interesting.

A (14:11)

And then geographically, I think you mentioned you're in six markets now and looking to expand. Where geographically are most of your deals?

B (14:19)

So basically our largest focus has been lately Lithuania and Poland. Besides these two markets, we've been, we have done deals in Ireland, Spain, Italy and Latvia. We are scaling each of them this year. We are making significant investment into foreign expansion. Basically, even though, you know, the EU may sell you this message of like there's one single market. Well, when we think about the financial market regulation, it's kind of true. Like we could, we can really easily, you know, passport our license and start up our operations. But when it comes to real estate law, mortgage law, all the different nuances, it's completely different world. Basically the way how we have been scaling this business is that we first enter the market, we do the deal, we see how it progresses, we do further steps, we see how hard is to navigate in the particular market. What are the niches that are in service to the banks? Because each market needs a niche. I always say that if you want to be profitable in financial industry, you must be disciplined and you must understand your niche. Where I see that a lot of companies in our sector are struggling. They kind of believe in this vision that we will be alternative to a bank and kind of goes out and competes for every deal. In our case, this is just my opinion. No one can compete with the bank if the bank can do the deal. So basically what we are doing, we are looking so what kind of bankable clients cannot get bank credit and for what reasons? So in each market this answer is different. So once we do the first deal, when we start hiring local people, establishing local teams, talking with the developers, then we scale those markets up. So this year we have set a serious target on Italy. We will further extend and we will also further expand our current operations and current geographies as well.

A (16:28)

Interesting. Yeah, it is funny, I guess like, you know, and it seems like the, I think in the US like people always think about Europe as being like too heavily regulated when it comes to technology especially. And it's like a really hard market to scale tech. But based on what you're saying, you know, that's actually the U.S. it would be very similar. Like, you know, you can get a global license or a national license to do securities trade of this type and then work in all of the markets. But you go to somewhere like Canada and you actually have to get province by province one, so it would be somewhere in between. I think maybe the greater headwind is like what you mentioned, all of the different local and that would exist in the US as well. You know, your real estate market and mortgage markets are often regulated on a state by state or province by province basis. I think the other layer that you get on top of it is length.

B (17:13)

Language barrier.

A (17:14)

Right. Which is just fascinating in its own. Right. Is English like the common denominator on. On people doing international business of this nature?

B (17:23)

Yeah, absolutely. But definitely knowing local language helps. So, you know, for. For us, that's like, we are always hiring people in different markets. Like, it's very, let's say, the. The biggest struggle I have in my business is not to find, let's say, people in Italy speaking English. You know, there's a lot of people speaking English in Italy, obviously having. Finding a person with, let's say, 10, 15 or 20 years of experience in banking, but then still being hungry and then being speaking fluent English and having the sense of urgency that things needed to be done yesterday. And when you put all these characteristics into a mix, it's really complex.

A (18:06)

Yeah. Yeah, it is. Like, Italy's a market that we've been think, like, thinking about a lot on the show. Like, a lot of American and Canadian capital wants to go to Italy. I think Portugal and Spain were really popular during the pandemic with a lot of like, the bitcoin Bros and stuff like that because of some of their tax laws. But now you're sort of looking at a lot of, like, baby boomers retiring, thinking about, like, really those more lifestyle destinations. And Italy's been really popular. I think the brand is obviously amazing, but you also have a huge Italian diaspora in. In the US And Canada. So that's one that I. I'd love to. Maybe not on this episode, but one of the things we like to do with our guests who like, really have deep product knowledge is actually like, have them back regularly. So maybe we can do like a quarterly Europe episod. You. I think that'd be really cool because it seems like you. You're one of the few people that I've seen that like, knows Six markets rather than like a lot of guys are specialists in one or two. Six is like great, especially if you can get, you know, if you're getting to the 10 or 12 that you're talking about, it'd be amazing. Let's talk a little bit about the demand side now. So who, so we've covered supply. We know where you're getting deals, we know who the developers are, who are your investors, where are they coming for? What are the most common places that you're seeing? Capital, you know, what are their, their net worths, Whatever you want to tell me as much like, feel free to go into as much detail as you can about the investor side of people using your platform.

B (19:22)

Sure. So we have an international investment base. We have more international investors than locals obviously because we come from a very small country. I would say that the largest nationality is German as it is also the largest country by population in Europe. I would say that we service three types of investors. So basically first is this advanced retail who typically invest, let's say a specific amount, let's say couple of thousand per month or 5,000 per month and they just spread it across the project. Then we have another type of investor which is a high net worth investor. He is still private, he knows what he's doing and he is very selective about the investment opportunities he want to pursue. And they invest something from a hundred K per project. And then, then we have companies and institutional investors. So this is already very, very different to the ones before. And again they, they even invest, you know, we have clients who invest over half a million euros per deals on the, on the platform if they really like it. But they're very selective in terms of the, how the, the investors, they mainly come through word of mouth. We have more investors than we can service. So basically we have, you know, like most of our deals are funded like in less than a day, like despite the size. So even like 5 million euros we funded like a couple of days. So we aren't as focused on acquiring investors as we are on acquiring deals. So just to illustrate this, you know, just this January we hired our CMO. Until then we had no CMO and pretty much no marketing budget to scale to €80 million portfolio. So I believe that, you know, like there's the saying, you know, like that if you're doing the right thing, the demand will come. So basically we just have had this excellent track record. People recommend us to one another and they just come, you know, it's like from, from the investor perspective, but I just need to be. Because, you know, I probably assume, you know, your audience is mainly American. We do not service American and Canadian clients. But so just be clear on this one. But just for you to understand, it's like once you open an account, you get your unique payments account as well. So you deposit money there, you get monthly interest in the same account, you get repayments from it, and you can very easily reinvest. The minimum investment amount is just €500. So it's very affordable to very different type of investors or even beginner investors

A (22:03)

in regards to the US And Canada piece. Because obviously I want to create as much value here as I can for you. You know, I, I've found that there are direct limitations, but like, you know, and maybe I don't know how much depth you have on sort of like the actual structure that somebody from North America might be able to do. But like, you know, we've seen US funds create like an SPV that can invest in another country, etc. Is there, is there a corporate level of participation that they might be able to create a vehicle here and then become like a sub fund within your platform? Like if somebody, if like you mentioned, most of our listeners are from the US and then a small portion from Canada, if they wanted to invest in one of your projects, they obviously can't do it through the site. Is there a way that they could do it? Or like, would you prefer that they maybe just email you and you guys can figure it out sort of in a more, more nuanced way?

B (22:53)

No, we, we just don't don't service the American clients. And I totally believe that there are certain structures that can be done. I've seen someone doing. But I've already got more clients, you know, from Europe, which I don't need to establish the structures for.

A (23:06)

Makes sense. That's, that's a good problem to have. Fair enough.

B (23:09)

Yeah.

A (23:11)

I guess in that regard then, are US Investors sort of like because of the way that crowdfunding is structured in Europe, are US Investors kind of like doomed to have to be direct investors or create their own SPV raise in the US and then purchase the property within that fund in another country? Just out of curiosity and given your understanding the structure.

B (23:29)

So this limitation of U.S. and investors typically comes down to the service provider level. So basically for us, it's a huge challenge to file taxes for American authorities. So basically just seeing the scale of the, and the volumes and the number of investors we can acquire in Europe, we just see at current moment there's just it's just too much of a hassle where and distraction of focus from our goal. Essentially what we can do for the American Americans is as you mentioned, investments in Italy. Americans, from what we hear, struggle a lot to raise capital for real estate developments in Italy. Banks, you know, most of the banks, they don't, you know, at this clerk level, they don't speak English. And typically banks in Italy, they want to do deals over 10 million euros. Whereas you know, there's like, let's say some experienced guys want to do a boutique hotel, et cetera, these sort of deals from borrower angle because the real estate investment carried out through a legal entity in Italy, we could facilitate finance. So let's say if one of your, if someone, someone from your listeners is exploring Italy or Spain for real estate investments, but of course not for consumption, not from consumer perspective, but just actually making business, doing maybe building a portfolio of cash flow properties. I think we are the right people to talk with because another problem that I forgot to mention that we solve in typically all of the markets that we operate is cross border lending and. Cross border, cross border, sorry, cross border borrowing. So basically if you're a foreigner, even let's say you are, let's say an Italian, excellent track record, excellent corporate finances, everything. And you want to do real estate development in Poland and you can go to the same name bank, let's say that operates both in Italy and in Poland. And if you're a foreigner, the doors of the bank will be closed, they will talk to you, they will hear you out, but this will lead to nowhere. So financing foreigners as well is a significant problem that exists in Europe and that we're able to solve.

A (25:42)

No, it's an excellent point. So you're probably of more value to a US investor who maybe doesn't want to become a retail investor in one of your projects, but actually wants to GP their own, own deal, buy something like you mentioned. I mean like, let's, let's, let's play that the example that you gave me because that's like something that I would love to do personally. So I want to buy a boutique hotel in a nice town in, in Italy. I have 30% you mentioned is sort of the minimum. So I'm willing to put in up to 30% cash or, and I need you to fundraise the remainder for me in a, in a, in a vehicle. And I would just basically tie up the property. Like what are the mechanics of that? I would, I would get the property under contract and then I would give you a Shout and say, hey, I have 60 days to waive my, my due diligence or financing condition on this. Can you raise the money for me?

B (26:29)

Yes. Basically, if you want to acquire such asset, typically you sign, you know, a preliminary agreement, you negotiate the terms, then you go out look for financing. If our terms of a deal work, we establish a loan agreements, we raise the capital, then in parallel we talk with the notary, with the seller. So we establish an escrow account at the notary in Italy and basically we funnel the financing to the notary escrow account and then we do a notarial deed between you, the seller and us as a party, we establish a mortgage. So we hold the mortgage title on the asset, the ownership title is transferred to you and you just service and pay our debt, pay us the interest. And let's say solutions like ours can be on the pricier end, but there's just typically not many alternatives. But once you have two year history of cash flow, let's say you have this boutique hotel, you have two years history of cash flow, then it's 10 times more easier for you to refine it to the local bank because then they look at you not already as a, you know, as a foreigner, they look at you as an Italian business having two air credit history, having employees, having real, real operations. So then it's cheaper to refine, then it's cheap to refinance at the bank with long term financing. So this is pretty much what we've been doing also across Europe for these foreign investors. We actually also funded one boutique hotel in Sicily in Catania. So it was a rundown building. They acquired it for very attractive price, got a development permit, they already acquired the building from their own equity and we just financed them that development based on LTC and I believe they are launching this year. So it will be a four star hotel, boutique, I believe, 32 rooms in the historical part of the city. And their aim is very straightforward. They will just refinance it as an Italian business after a couple of years at the local bank.

A (28:51)

Is that, is that the most common exit that you see? Like people will use your, your money as sort of like a bridge to get to better term financing on cash flow assets.

B (29:01)

Yes, if we talk about more of a conversion assets, so basically renovations or flipping, then typical exit is the buyer, unless something gets stuck in the process. Because you know how real estate development goes, you know, the contractor can be laid, you need to make some amendments to the building permit. There's a lot of things that can go south so in those particular cases we, you know, we evaluate the situation. Typically if, let's say the. In cases where we see that the mismanagement of the timeline was due to external factors, in those cases we refinance the project ourselves. If we see that, you know, it's due to just mismanagement of the project or poor performance of the developer. These sort of projects are typically refinanced by other financial institutions. For you to understand like the way how European real estate lending sphere goes. There are so many financial institutions operating on so many different risk appetites. So let's say we are a little bit more expensive than a small bank. So let's say for small bank currently lends to these sort of projects for something between Atem 10% APR, we land between 10 and 13%. So we're close. But then there's another stage where there's 13 to 15, there's 15 to 20 and then there's 20 to 25. But for a lot of these entities, for some there's their business is not finance. It could be a. Let's say they're in a repossession business, you know, because just to make the

A (30:45)

development loan to own. We call that.

B (30:48)

Yeah, then.

A (30:49)

Okay. Yeah, so I guess you, you kind of gave me a bit of an idea of like the fee structure. Do you only make your money on like a management fee or spread on like a. You're kind of like aum or do you charge like, do you guys charge fees on the way in as well?

B (31:03)

We charge a, a commission for deal structuring. So let's say at the establishing of the agreement, we set our commission that is paid by the borrower. So let's say the inverse is being earned by the investor and we just live off from commission. But as a platform, you know, we offer various different services. So let's say we have secondary market. If, let's say one of our investors want to exit early, they can. So you know, we charge 2% there and as most financial institutions come, it's having a client and then just making more and more revenue per user. So all of these even small fees, they all combine and aggregate and with scale, you know, it becomes to increasingly larger amounts.

A (31:47)

Awesome. Awesome. I think that's all the questions I have, at least for this episode. But I would love to invite you back, like if you're cool with it, to have you on kind of regularly to talk about what's going on in the market in Europe and maybe we can get a little bit more into like Almost like market reports for each of the different markets. I just didn't want to hit you too much with that today without you being prepared and yeah, I mean, is there anything that you, you feel like I. You wish I asked you or that you'd want to leave the audience with before we wrap up here?

B (32:15)

Oh, I think we covered pretty much everything for now for this episode, so. Very happy to. For sure.

A (32:20)

Yeah, I completely agree. If, if people want to reach out to you, they want to find your website, they want to connect with you directly. Where would you like them to do that?

B (32:28)

Yeah. So in terms of our website, you can visit@enrento.com and you can just contact me at my email gustav@invento.com I know it's hard to understand as an English speaker, but if you visit our website, you'll definitely find our contacts or just write general.

A (32:46)

I'll put it all in the show notes as well so people, people can find it easily. Amazing. Well, thanks a lot for your time, man. I really appreciate it and I look forward to having more discussions with you. I'll get you set up with my, my co host as well because he, he does like a lot of international money exchange. So he, I'm sure he would have some, maybe some better questions to ask you or we can both come on. But yeah, look forward to having continued discussions. Really appreciate your time and encourage everybody if they get a chance to check out in Rento. I know we have a lot of US investors who are interested in, in the European market. I think especially with what's going on with, you know, a lot of people were interested in like Dubai and Mexico two weeks ago and those two markets are both think big question mark as it stands right now. So Europe is probably going to fall back in favor I think for a lot of US investors. So thanks again and look forward to having you on hopefully as a, as a regular contributor to the show.

B (33:32)

Thank you.